Stateline New South Wales

Egan clubbed.

The New South Wales registered club industry says it's going to be wiped out by the Carr Government's increases in poker machine tax.

It's an alarming claim, given the jobs generator -- particularly in suburban, regional and rural areas -- the clubs have become since pokies were introduced in 1956.

In 1997, licensed hotels got the pokies, courtesy of a new Labor Party policy, and through it the competitive dynamic of the entire liquor industry has changed.

There are many more very wealthy private hoteliers, thanks to the pokies, and the pubs are back from the brink of financial collapse -- a situation produced, it was said, by random breath-testing.

Now, on top of the Howard Government's GST on gambling has come State Treasurer Michael Egan's latest pokie tax increases, to apply from July and September next year.

Already, club industry contributions to community charities and sports, particularly rugby league, are said to be at immediate risk.

Are the clubs pulling our legs, as the Treasurer has suggested?

What are the consequences for the Panthers Group if this regime of increases goes through?

ROGER COWAN, CEO PANTHERS ENT.

GROUP: There's no way possible that we could survive.

QUENTIN DEMPSTER: Roger Cowan, chief executive of the Penrith Panthers for 38 years, is one of the fathers of the NSW club industry.

Mr Cowan's CEO pay cheque is close to $600,000 a year.

Over the last two years, with hotels now intensively competing with the clubs for pokie revenue, the Panthers club -- the State's biggest, with 1,000 machines at Penrith alone -- has found itself bailing out or amalgamating with smaller sporting and community clubs -- two at Bathurst, at Lavington, two at Port Macquarie, two at Newcastle, at Cabramatta, St John's Park, West Epping, Wallacia, North Richmond and Glenbrook.

But with Treasurer Michael Egan's announcement of a 7-year, 18 per cent to 40 per cent up-sliding tax increase for clubs earning more than a yearly million in pokie revenue, Roger Cowan now sounds this death knell.

ROGER COWAN: I would put our life at three to four years and we'd be out of business.

We could not possibly pay that tax regime.

QUENTIN DEMPSTER: Well, we'll hold you to that, I'm sure.

But the whole of the Panthers group you're talking about?

ROGER COWAN: Yes, I'm talking about the whole lot.

QUENTIN DEMPSTER: All your clubs at Bathurst and Newcastle and Port Macquarie?

ROGER COWAN: Well, it's all one club now, just in different sites.

So we've only got one bank account.

We pay one lot of poker machine tax -- spread across all those clubs -- of course.

So, you know, the whole thing is at risk.

QUENTIN DEMPSTER: You're just not bluffing here, Mr Cowan, are you?

Because it's a very serious statement that you've just made, given that the Panthers Group employs 1,500 people.

ROGER COWAN: I think that's the problem, that a lot of people do think we're bluffing.

QUENTIN DEMPSTER: Is Roger Cowan being alarmist, trying to inflame the club industry's campaign against the increase?

Now comes the clash of the experts.

Betty Con Walker is an economist who's studied the finances of this State's 1,500 clubs, with their 75,000 poker machines, and 1,800 hotels with 25,000 pokies.

She's concluded the clubs have no case.

BETTY CON WALKER, ECONOMIST: The bulk of the clubs are not affected by the changes in the tax regime.

In terms of their community contributions, an analysis of their financial statements shows they are not big and, in fact, you look at this year's budget papers and you'll find what I broadly term a subsidy of $460 million to the club industry.

That means, if the club industry was paying the same tax rate as the hotels, the Government would have an extra $460 million to spend on services.

Not only will they not be able to fund football, they will not even be able to fund grassroots football.

At the end of the day, increasing someone's tax from $3.9 million to $7.3 million with a net profit of only $1.2 million does not work.

No profit, no sport, no club.

QUENTIN DEMPSTER: Roger Cowan gave Stateline this analysis to try to explain why the Panthers Group of 14 clubs would be wiped out.

ROGER COWAN: For every $100 that we take through the club -- to make it easy -- I'll explain where that goes.

$79 out of every $100 goes to paying costs and wages, and our wages bill across the whole group is about $50 million, so it's a big component.

After we pay all those costs, we've got $21 left out of every $100 and from that $21, we're paying $14.80 in poker machine tax, so that leaves us $6.20.

From that, we pay payroll tax of $1.50 out of every $100, leaving us with $4.70 out of every $100, which we distribute at the moment about $1.50 to the community, about $1.80 to rugby league and all we keep is $1.20.

So for every $100 up there, we finish with $1.20.

QUENTIN DEMPSTER: Anthony Waters, a gaming research analyst, says the club industry's high levels of borrowings from the banks makes them now financially vulnerable through any further loss of poker machine income, particularly following the introduction of the GST.

ANTHONY WATERS, GAMING RESEARCH ANALYST: I think there probably will still be a club industry, but it will be significantly different to what it is now.

Certainly, it will be a lot smaller.

A lot of clubs won't be able to survive -- I would certainly agree with that.

If you have a look at the indebtedness that the industry has with the major banks of around $750 million, as a conservative estimate, under that basis, given that growth rates in gaming machines are now very mature, you're looking at 2 per cent to 3 per cent growth rates per annum, if that.

Certainly, they cannot support the sort of increase in taxes that the Government has mandated.

QUENTIN DEMPSTER: Premier Bob Carr and his government are already addicted to poker machine revenues.

They've saturated the market over the last five years by extending licences to hotels.

Now, with 100,000 poker machines, NSW has one of the world's highest per capita pokie ratios and Mr Carr makes no apology for it, only agreeing to cap pokie numbers some years ago after a public outcry.

BOB CARR, PREMIER: The right to run poker machines is a partnership with government and the government is entitled to claim for the taxpayer a larger share of the profits that the big clubs make, the big clubs.

Now, it might mean one or two clubs can't put rainforests and waterfalls in their foyer, but it means more money for our schools and our hospitals.

DAVID COSTELLO, CEO CLUBS NSW: Well, the last time I was in Parliament House, I noticed a fairly significant waterfall inside Parliament House and I think Governor Macquarie Tower has got a fair amount of marble and other nice furnishings as well.

QUENTIN DEMPSTER: Treasurer Michael Egan and Premier Carr are now in bitter dispute with the club industry over the impact of the new tax regime.

So far, State Treasury rejects outright warnings of the industry's imminent demise.

MICHAEL EGAN, TREASURER: It's simply laughable for the clubs that can pay their secretary-managers $600,000 a year to be crying poor mouth.

They're pulling your leg.

QUENTIN DEMPSTER: He's referring to you there, Mr Cowan, you get $600,000 -- three times the Prime Minister's salary.

ROGER COWAN: Well, I don't quite get that much.

But what I'd like to say -- that's a little bit of a red herring, isn't it?

The Treasurer wants to take $17 million extra in tax.

Perhaps what he should -- maybe what he should do is tell me, or tell this club, what a chief executive of a company with $300 million in assets, $150 million turnover, employing 2,000 people, what should that person be paid?

As a matter of fact, if he comes up with something reasonable, I'll accept it, and then he can stop punishing the industry on that grounds.

QUENTIN DEMPSTER: Well, he'll take up that challenge and probably give you $200,000 to $300,000.

ROGER COWAN: OK, that's fair enough.

QUENTIN DEMPSTER: So you put that on the table, do you?

ROGER COWAN: Yeah, it's on the table.

What he thinks is reasonable.

QUENTIN DEMPSTER: But your point is, if you're serious about the survival of the club industry in NSW, you'd be prepared to do that?

ROGER COWAN: It's a red herring.

Sure I would.

I think that that should not be an argument to impose horrific taxes on the whole industry.

QUENTIN DEMPSTER: There's one other very pertinent question in this debate about what's reasonable and fair in gaming tax.

DANIEL MUNK: The one question I would have for Egan, if it's so important for his budget to tax clubs and allow a huge loss to the community, why is the casino only paying 22 per cent and will only keep paying 22 per cent to 2007?

Obviously, a group owned by Tabcorp is more important than a community club.

QUENTIN DEMPSTER: Star City Casino pays pokie tax of only 22.5 per cent, reviewable by 2007.

State Treasury rejects it's favouring Tabcorp, as the operator has already paid a $376 million upfront licence fee.

But, with the clubs and pubs whinging at tax rates of up to 40 per cent and 50 per cent, it's the casino which has emerged the winner, now with a big competitive advantage to attract even more pokie gamblers.

If the club industry throughout NSW does go into recession, with many clubs closing doors and retrenching employees, how will State Treasury explain the economic loss to the community, let alone to our hard-pressed schools and hospitals?